GM600 - Tom's Research

Update. 03/17/2012

Executive Summary

Elevator Pitch

Vancouver Distillery is a craft distillery producing premium vodka. Vodka, their flagship spirit, has a number of attractive characteristics that makes it desirable in today’s market. Vodka is popular with in young professionals who enjoy the drinks versatility. Vodka is a drink that can be enjoyed in shots, tall drinks, martinis and mixed with juices.

Vancouver Distillery is choosing to tap into the growing sophistication of the American pallet. Vancouver Distillery believes that the consumer is looking for a greater challenge in their drink and that the consumer believes that a product in the $25 to $35 dollar range will give them that challenge.

Overview

Before it meets the bottle, it’s born of water and grain. The distilling of alcoholic spirits is big business and as a distiller we need only know one thing, what’s your pleasure? People pine the colors, swirl the glass inhale the bouquet, sip and then ponder the flavors. We are not talking about wine admirers, these are vodka aficionados.

Vodka dominates the spirits industry, accounting for 28% of all volumes. In 2007, 51.2 million 9-liter cases of vodka were sold in the United States, generating over $4 billion in revenue for distillers. Reflecting American’s desire to drink better, Super-Premium brands drove growth – increasing around 38% in volume. Over the past few years distillers have an array of flavored vodkas. Today, the public can enjoy vodkas that have been infused with natural spices, refreshing citrus flavors, raspberry, vanilla and others. Flavored vodkas now account for almost 14% of all vodkas sold.

This highly mixable beverage is found in such famous drinks as vodka Martinis and the ever-popular Screwdriver. In addition, many of the newer Premium and Super-Premium brands are ideal when sipped slowly “on the rocks” (over ice) or “neat” (straight).
Source: Distilled Spirits Council, Economic & Strategic Analysis Dept.

Vodka's neutral flavor makes it ideal for mixed drinks - and it is the most popular and most often used alcohol in almost any bartender's arsenal. Because of Vodka's inert flavor, vodkas and vodka drinks inherit the character of what they are mixed with and are extremely varied in character and flavor.
Because of its chameleonic nature, Vodka comes in an amazing variety of flavors, and having the flavors imparted to the alcohol itself may make for a more complex and enjoyable drink. It is common to use these flavored vodkas to complement the mixers that are used, but it is often quite pleasant to mix flavored vodka with plain soda water and a simple sweetener.
A Craft Distillery
A craft distillery is basically a small output distillery whose operation is considerably different from large production distilleries. There are no current precise legal definitions of what makes a craft distiller a craft distiller as opposed to a larger-production distiller. Many craft distillers are incredibly small and informal operations. Some distilleries call on the help of part-time workers to label bottles, while in other operations the distiller might have to drive the truck with his ingredients from his or her suppliers. Most relay on the Internet, word of mouth, and tastings, competitions, and product reviews to get the word on their product out.In general, craft distilleries tend to focus on small production runs of high quality spirits. They also tend to create unique spirits or spirits that occupy niche places in the market that larger conglomerates avoid. Craft distilleries also tend to take more chances in terms of their production, experimenting and challenging boundaries and classifications in the spirit world. Most craft distilleries utilize small pot stills or hybrid stills, while some have the option of using double column continuous stills.Many smaller operations, especially those that are starting up, stick with fruit spirits, gin, vodka, rum, and such because the ingredients are readily available and many of these spirits do not require extended aging like whiskies do. If they do distill whiskies, the whisky traditionally only appears after a few years, when the minimum aging requirements are met. Due to the small output of many craft distilleries as well as variations in liquor laws, many craft distilleries have distribution limited to only a few local states or small regions.

Business Description

Mission Statement

Vancouver Distillery was founded on three core values: Honor, Integrity, Continually Seeking a better Spirit. These core values are the foundation for every decision we make from creating our Vodka’s to hiring energetic Team Members and even the choosing of the ingredients we use.

Vancouver Distillery is driven by uncompromising quality and our ongoing efforts to bring our customers the best Micro-distilled Vodka’s in the Northwest or anywhere. Our core values and unbridled atmosphere is at the heart of the company’s energizing culture and its shows through our Vodka’s and team members.

Value Statement

For consumers who value consistent quality and a good value, and are seeking the simple
pleasure of a smooth and warming drink, Vancouver Distillery offers a variety of great-tasting vodkas at an everyday fair price, and delivers a moment of pure satisfaction each and every time you un-whined with a glass.

Vision Statement

Within the next five years, Vancouver Distillery wants to be “her” Northwest’s Vodka. Through all of our products, services and relationships, we will add to life’s enjoyment.

Company Summary

The founder of Vancouver Distillery is John Bennett. John has been and continues to be a serial Entrepreneur with a diverse history of building companies in Healthcare, Real Estate and Construction. Mr. Bennett first came to the idea of a Wine Vodka back in 2006 while experimenting with the distillation of Pinot Noir and Pinot Gris.

John and his family along with the Vancouver Distillery team members will invest in the business. The combination of these funds provide Vancouver Distillery the capital needed for research, start-up costs, and to support the firm.

Vancouver Distillery has strict standards that we believe will have us counted as one of the best in the distillery business, and our suppliers are checked regularly to make sure they are meeting or exceeding our high standards of quality.

In order to become “Her” Northwest Vodka, Vancouver Distillery will focus on a female’s interest in vodka. Vancouver Distillery believes that it's not about going pink, but rather, getting to the heart of how women feel about our product and translating that knowledge into influence. The bottle label will have the company’s website which will have links to woman’s issues. Also on the label will be easy vodka drink recipes, drink and dish suggestions and uses. Vancouver Distillery will connect will our target consumer by marketing our product as an ingredient in the kitchen as well as being a superior smooth spirit.

A suitable location has been chosen for Vancouver Distillery, in Vancouver Washington, He has elected to start up the distillery in less expensive warehouse space versus more expensive retail space located in the core of downtown Vancouver. Availability of product for delivery and retail is projected for fall of 2012.

Manufacturing and warehouse site is located at12401 NE 60th Way Unit A7, Vancouver Washington, 98682

John Bennett, CPA, MBA
19215 SE 34th Street Ste 106-354
Camas, Washington 98607
Ph: 360.600.2660[[image:data:image/png;base64,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 width="16" height="16" link="home"]]

Future Plan

If the concern is meeting its projection by the end of year one, additional research will be conducted to test the market for other location opportunities. Vancouver Distillery sponsored events and contest will be conducted to gain interest in Vancouver Distillery and to further test the business’ growth potential.

The financial strategy of Vancouver Distillery focuses on long-term, sustainable growth as opposed to quick, short-term profits. In order to remain cash solvent, the founding partners are prepared to accept drastically reduced compensation to ensure the company’s future.

Industrial Analysis

Industry Review

Although the distilled spirits industry is highly competitive, growing interest in premium high quality vodka’s continue to grow. It is Vancouver Distillery’s belief that a neighborhood tavern that supplies its customers with a friendly atmosphere to get together, while providing quality drinks can succeed by creating a unique experience from that of its competitors. In order to do this, those locations are becoming a part of the growing trend in which Vancouver Distillery see’s itself supplying a premium vodka that there customer are looking for.

Vodka dominates the spirits industry, accounting for 28% of all volumes. In 2007, 51.2 million 9-liter cases of vodka were sold in the United States, generating over $4 billion in revenue for distillers. Reflecting American’s desire to drink better, Super-Premium brands drove growth – increasing around 38% in volume.
Over the past few years distillers have delivered an array of flavored vodkas. Today, the public can enjoy vodkas that have been infused with natural spices, refreshing citrus flavors, raspberry, vanilla and others. Flavored vodkas now account for almost 14% of all vodkas sold.
Source: Distilled Spirits Council, Economic & Strategic Analysis Dept.

Types of Alcohol

Craft distilleries may distill so-called neutral spirits (vodka or grain alcohol), rum, brandy, cordial, whiskey or liqueur. They may also produce spirits by infusion through redistillation. Craft distillers may start with already distilled neutral spirits as long as they alter the neutrality of the spirits in the process.
Permits and Licenses
Under the Alcohol and Tobacco Tax and Trade Bureau's regulations, craft distilleries fall into the category of "beverage," as opposed to "industrial." Such distilleries are defined as those involved in the production, bottling, processing or storage of spirits suitable for consumption. Applicants must complete TTB F 5100.24, the basic permit established by the Federal Alcohol Administration Act. They also must notify the Food and Drug Administration of their intent to produce alcoholic
Taxes
Operators of craft distilleries are required to pay the federal distilled spirits excise tax. Fourteen states --Arizona,California,Connecticut,Hawaii,Kansas,Massachusetts,Maryland,Minnesota,Nevada,New Mexico,New York,Oregon,VermontandWashington-- as well as theDistrict of Columbiaalso have their own distilled spirits taxes.
State Laws
States are granted powers under the 21st Amendment with authority to regulate the production and sale of alcoholic beverages. Eighteen of the states are so-called "control" states, which maintain various degrees of direct control over the manufacturing and distribution of alcohol -- the most strict of which limit the sale of alcohol to state-run stores. In the other 32 states, producers of distilled spirits are allowed to sell directly to their customers or to wholesalers.
Source: Tan Vinh, http://seattletimes.nwsource.com/html/outdoors/2008004461_nwwdistillers190.html

Regulation Review

Production limits and other restrictions on craft distilleries are set to change following passage in the Washington House and Senate of an amendment to the Craft Distilleries License provisions of Title 66 of the RCW. For those familiar with the original bill enacted in 2008, these are welcome changes and hopefully only the beginning of the modernization of the regulation of spirits, as the artisan distillery industry emerges inWashington.
A brief summary of the changes (SB 6485):
● increases production limits from 20,000 to 60,000 gallons of spirits per year;● allows distillers to sell spirits directly to other licensed distillers and manufactures, allowing cooperative arrangements between distillers;● permits distillery employees to serve their spirits directly to the public as part of a special occasion license;● changes the existing “grower’s license” to cover production and sale of spirits in addition to wine.
For those unfamiliar with the basics of the Craft Distillery law, some of the highlights include:
● all spirits must be produced with a minimum of 50% of Washington sourced raw materials (not including the water of course);● reduction of annual licensing fee from $2000 to $200;● allowing direct on-premise sales of up to 2 liters of spirits per consumer;● allowing on-premise sampling of spirits by consumers of up to two ounces, in half ounce portions.
Just in case you thought that the Board was going to give up too much control, don’t forget that any direct sales and samples must still be purchased from the Board at the retail price the Board establishes. Sensibly, however, you don’t have to transport the bottles to the distribution center inSeattleand then back to your distillery, but you do have to keep good records and make an accounting to the Board.
Source. http://washingtonregulatorylaw.wordpress.com/2010/03/15/changes-to-craft-distillery-provisions/
New rules are needed to implement Initiative 1183 that passed on November 8, 2011. The state of Washington changed from a controlled liquor system to a privatized liquor system. Some sections of the initiative become effective on December 8, 2011. New license types were created and emergency rules are needed to clarify the language in the new laws created in Initiative 1183.
The mission of the Washington State Liquor Control Board (WSLCB) includes ensuring the responsible sale, and preventing the misuse of, alcohol.
Source. WSLCB. http://liq.wa.gov/publications/rules/OTS-4517%203final.pdf

See Appendix A for the Revised Code of Washington on Initiative 1183.
Competitive Analysis
It may be easy for a company to identify its competitors, but knowing the competitors is a much tougher task. With Vancouver Distillery, the main competitor is Clear Creek Distillery that has the maximum market share in the greater Vancouver/Portland area with $1.25 million in net sales last year.
Source: Burningham, Lucy. http://www.oregonbusiness.com/articles/89-august-2010/3840-shaken-and-stirred?start=3

Porter five forces of competitive position
According to Michael Porter five forces of competitive position model provides a simple perspective for assessing and analyzing the competitive strength and position of the company. The five forces are –

Existing competitive rivalry between suppliers
Threat of new market entrants
Bargaining power of buyers
Power of suppliers
Threat of substitute products (including technology change)

Existing competitive rivalry between suppliers - Industry competitors and extent of that rivalry. As the market for vodka’s has grown and drinking preferences of women has changed the competition for those consumers has increased. Many manufacturers are reducing margins to increase market share.
Threat of new market entrants - Smirnoff and Popov pose the most significant threat to Vancouver Distillery since they dominate the distilled spirit market. The entry of other craft distillery competitors in the Portland/Vancouver market could also decrease Vancouver Distillery target market share in the Northwest.Bargaining power of buyers - In today’s distilled spirit market consumers have many choices of vodka’s, ranging from value products to the more expensive premium brands. With this in mind, Vancouver Distillery will produce a quality vodka that is just better and different from what is being produced by other manufacturers and new entrants.
Power of suppliers - Vancouver Distillery has a strong relationship with its suppliers which it will use to increase the company’s competitive edge over its competitors. The whole goods is also a very competitive industry and Vancouver Distillery will use the current climate to reduce its cost of goods sold.
Threat of substitute products - Substitutes refers to the many mass produced vodka’s on the selves today. The treat comes from the ever changing preferences of our customers which Vancouver Distillery plans on holding onto once captured through our varied product lines of quality vodka’s and our seasonal select vodka’s.

Competitive Strategy

There are three major ways in which Vancouver Distillery will create an advantage over our competitors;

product identity, quality, and value
high employee motivation and good sales attitude
innovative and aggressive service options.

Vancouver Distillery will offer a friendly atmosphere with a strong sense of belonging for each of our customers to experience. The product is a high quality, prepared by professional and experienced distilling masters to meet our customer’s desires and palates.

Craft distilleries
A growing number of small craft distilleries are spread around Portland. Several are located in an industrial area in southeast Portland, known as Distillery Row, as well as by other nicknames. Clear Creek Distillery is in northwest Portland off U.S. Highway 30.
Outside of Kentucky, Oregon hosts one of the nation's most exciting craft distillery scenes. Family-owned Brandy Peak Distillery in Brookings makes spirits the old-fashioned way, from a wood-fired still. Beer empire McMenamins runs a distillery next to Edgefield Hotel in Troutdale, east of Portland. In southeast Portland, House Spirits Distillery can craft a barrel of whiskey tailored to your taste. Nearby, Integrity Spirits makes an absinthe.
Source: Tan Vinh, http://seattletimes.nwsource.com/html/outdoors/2008004461_nwwdistillers190.html

Market Segmentation

The market for Vancouver Distillery covers a large area of densely populated and diverse groups. Vancouver Distillery is located in SE Vancouver, near Westgate Mall and Mall 205 in Portland. This location has easy access from the freeway, is near shopping centers as well as many neighborhood pubs. There also many offices, business, and local venues that attract citizens to the area. With so many citizens and businesses that attract citizens, Vancouver Distillery has an opportunity to attract a variety of customer to the business.

PORTLAND — You know folks in the southeastern part of this city reckon they are on to something big because the nickname game has commenced. Portland has a district called "Distillery Row."
The small craft distillery scene has hit Portland, reminiscent of the microbrewery boom two decades ago. Young microbrewers and winemakers are now distilling whiskey, brandy, grappa and even absinthe. And taking a page from Kentucky's iconic whiskey distillers, they are beginning to host tours and tastings. With 17 micro-distilleries in Oregon, and eight more startups expected across the state by year's end, spirits aficionados haven't seen anything like this in recent memory.
Washington may see a boom in the distillery industry thanks to the legislature's passage in March of a law allowing distilleries to host tasting rooms and sell spirits on their premises.
The change clears major barriers and allows micro-distilleries to operate almost like a winery or brewery. Previously, only the state could sell liquor, a holdover law from the end of Prohibition.
In July, Dry Fly Distilling in Spokane, the state's first distiller since Prohibition, will start offering tastings for its vodka, gin and, soon, whiskey.
Under the new law, distilleries can offer up to two ounces in tastings and sell each customer up to two liters per day. The annual distillery license fee dropped from $2,000 to $100, similar to Oregon's fee.
Source: Tan Vinh, http://seattletimes.nwsource.com/html/outdoors/2008004461_nwwdistillers190.html

Market and Location of Customers
Local population

The city of Vancouver has a population of 173,000 and is located the Southwest corner of Washington. The female population is 51.2 %. It is less than 15 minutes from the border of Portland Oregon which makes that greater Vancouver area (within 20 miles of city center) population over 750,000

The city of Portland has a population of 537,000 and is located the Northwest corner of Oregon. The female population is 50.5 %. It is less than 15 minutes from the border of Vancouver, Washington which makes that greater Portland area (within 20 miles of city center) population over 750,000. The total female population of the area is about is 384,000.
Source: US Census Bureau:. (http://quickfacts.census.gov/qfd/states/41/4159000.html).

Colleges and Universities – There are over 5 major colleges in the greater Portland Area. They include: University of Portland, Portland State University, Portland Community College, Devry University, Clackamas Community College, Multnomah Bible College, and Warner Pacific University, and Lewis & Clark College.

Local businesses – According to the National Restaurant Association there are over 1875 restaurants within Multnomah County. According to the National Restaurant Association there are over 1398 restaurants within Clark County.
Source: National Restaurant Association: http://www.restaurant.org/research/economy/rpi/

Market Growth Potential

According to the National Restaurant Association report released in September 2011, the menu price inflation rate for August 2011 has increased by 2% over the past year. Grocery store price inflation has risen in the past year by 4%. This means that consumers have a higher perceived value of dining at a restaurant versus purchasing groceries at a grocery store. The anticipated growth rate of those dining out in the next quarter is much higher this year as compared to last year. The economic downward spiral of 2008 has seemed to taper off, and may make a positive return in the upcoming years. This is excellent news for the restaurant industry as well as the distilled spirits industry as the rate of consumers dining and drinking out will increase.
Source: National Restaurant Association: http://www.restaurant.org/research/economy/rpi/

Market Trends & the Future

The estimated population of Portland has continued to increase annually by about 1.5-2% annually for the past 4 years. The growing population is represented by those within our target market (age 25-65). Portland attracts those that are not home owners, single, and non-parents. This also fits our target market.
Source: US Census Bureau: http://quickfacts.census.gov/qfd/states/41/4159000.html

Washington's new craft-distillery license, which became available last summer, has led to a burgeoning of new distilleries. Some differences between the craft and regular distillery licenses that are available*:
Annual license fee: $100 for craft distillery ($2,000 for a regular distillery).
Tasting rooms: Up to 2 ounces per customer (craft) and not available (regular).
On-site sales: Up to 9 ounces per customer (craft) and not available (regular).
Ingredients: At least 51 percent from Washington (craft) and no local restrictions (regular).
Volume limit: Up to 20,000 gallons a year (craft) and no limit (regular).

This information doesn't include several "fruit and wine" distilleries, which are wineries that make fruit brandy and wine with alcohol content above 24 percent.

Source: Washington State Liquor Control Board

Risk Analysis

Risk Evaluation

Given that Vancouver Distillery is a new business venture and markets can change rapidly, there is risk involved. The success of the craft distillery is dependent upon the appeal to the indeed market. Further analysis, to include the revision of the competitive analysis, will be conduct after the first year. Strategies will be revised, at that time, as necessary to ensure viability. A start up venture is subject to risks and uncertainties that may cause actual results to differ materially, the risk and uncertainties inherent in the early stages of new company, the company's need to raise additional capital to proceed with its business, risks associated with competitors, and other risks.

Demand for our spirits products may be adversely affected by many factors, including changes in consumer preferences and trends.
Consumer preferences may shift due to a variety of factors including changes in demographic and social trends, public health initiatives, product innovations, and a downturn in economic conditions, which may reduce consumers’ willingness to purchase distilled spirits products or cause a shift in consumer preferences toward beer, wine or non-alcoholic beverages.
Vancouver Distillery’s success depends in part on fulfilling available opportunities to meet consumer needs and anticipating changes in consumer preferences with successful new products and product innovations.

We face substantial competition in our industry and many factors may prevent us from competing successfully.
Vancouver Distillery competes on the basis of product taste and quality, brand image, price, service and ability to innovate in response to consumer preferences. It is possible that our competitors may either respond to industry conditions or consumer trends more rapidly or effectively or resort to price competition to sustain market share, both of which could adversely affect our sales and profitability.

Risks associated with commodity price volatility and energy availability could adversely affect our business.
Vancouver Distillery is exposed to risks associated with commodity price volatility arising from supply conditions, geopolitical and economic variables, weather, and other unpredictable external factors. Vancouver Distillery buys commodities such as corn and other grains, molasses, grapes, glass and plastic for the production, packaging and distribution of our products.
Availability, increases and volatility in the prices of these commodities, as well as products sourced from third parties and energy used in making, distributing and transporting our products, could increase the manufacturing and distribution costs of our products.

Changes in regulatory standards could adversely affect our business.
Vancouver Distillery is subject to extensive regulatory requirements regarding distribution, production, labeling, and marketing. Changes to regulation of the beverage alcohol industry could include increased limitations on advertising and promotional activities or other non-tariff measures that could adversely impact our business. In addition, Vancouver Distillery faces government regulations pertaining to the health and safety of our employees and our consumers as well as regulations addressing the impact of our business on the environment. Compliance with these health, safety and environmental regulations may require us to alter our manufacturing processes and our sourcing. Such actions could adversely impact our results of operations, cash flows and financial condition, and our inability to effectively and timely comply with such regulations could adversely impact our competitive position.

SWOT ANALYSIS

Vancouver Distillery see’s its strengths as the ability to respond quickly to what the market dictates and to provide a premium craft distilled spirit to a growing market. In addition, through aggressive marketing and quality management we intend to become a well-respected and known entity in our respective industry. Below are the summarized strengths, weaknesses, opportunities and threats.

Strengths

Distinct bottle shape that helps the consumers to remember the name easily
New products can position themselves aggressively in the marketplace
Strategic market segmentation and implementation strategies.
An aggressive and focused marketing campaign with clear goals and strategies.
An ultra premium product that capitalizes on the current growing trend of craft spirits.

Weaknesses

There is no history with the consumer.
Lack of a reputation in comparison to our competitors.
A limited financial base as a start-up in the industry.
Channels of distribution not defined.

Opportunities

New Flavors - Flavored vodkas attract the consumers.
Changes in Washington State regulations related to distillers.
Changes in social patterns, population profiles, lifestyle changes, etc.
The market for pre-mixed drinks has developed at a rapid pace in the last few years.
Consumer preferences evolving, opportunity for a more sophisticated product.
Specific niche – Women are a growing market for the Vodka industry.
Diversifying market segments so there is no dependency on one particular market.

Threats

The present growth in the market may result in market saturation, through competition.
Flooding of new flavors
Increasing number of craft distilleries looking at penetrating the market
Existing competition such as established local craft distillers.

Marketing Section

III.Operations Section

Finance Section

Appendix/References

Appendix A - The Revised Code of Washington on Initiative 1183.

Appendix A.

The Revised Code of Washington

RCW 66.24.145 Craft distillery — Sales and samples of spirits.

(1) Any craft distillery may sell spirits of its own production for consumption off the premises, up to two liters per person per day. A craft distillery selling spirits under this subsection must comply with the applicable laws and rules relating to retailers.(2) Any craft distillery may contract distill spirits for, and sell contract distilled spirits to, holders of distillers' or manufacturers' licenses, including licenses issued under RCW 66.24.520, or for export.(3) Any craft distillery licensed under this section may provide, free of charge, one-half ounce or less samples of spirits of its own production to persons on the premises of the distillery. The maximum total per person per day is two ounces. Every person who participates in any manner in the service of samples must obtain a class 12 alcohol server permit. (4) The board must adopt rules to implement the alcohol server permit requirement and may adopt additional rules to implement this section.(5) Distilling is an agricultural practice.
[2012 c 2 § 205 (Initiative Measure No. 1183, approved November 8, 2011); 2010 c 290 § 2; 2008 c 94 § 2.]

RCW 66.24.630
Spirits retail license.

Distinct bottle shape that helps the consumers to remember the name easily
New products can position themselves aggressively in the marketplace
Strategic market segmentation and implementation strategies.
An aggressive and focused marketing campaign with clear goals and strategies.
An ultra premium product that capitalizes on the current growing trend of craft spirits.

Weaknesses

There is no history with the consumer.
Lack of a reputation in comparison to our competitors.
A limited financial base as a start-up in the industry.
Channels of distribution not defined.

Opportunities

New Flavors - Flavored vodkas attract the consumers.
Changes in Washington State regulations related to distillers.
Changes in social patterns, population profiles, lifestyle changes, etc.
The market for pre-mixed drinks has developed at a rapid pace in the last few years.
Consumer preferences evolving, opportunity for a more sophisticated product.
Specific niche – Women are a growing market for the Vodka industry.
Diversifying market segments so there is no dependency on one particular market.

Threats

The present growth in the market may result in market saturation, through competition.
Flooding of new flavors
Increasing number of craft distilleries looking at penetrating the market
Existing competition such as established local craft distillers.

Industry Review

Although the distilled spirits industry is highly competitive, growing interest in premium high quality vodka’s continue to grow. It is Vancouver Distillery’s belief that a neighborhood tavern that supplies its customers with a friendly atmosphere to get together, while providing quality drinks can succeed by creating a unique experience from that of its competitors. In order to do this, those locations are becoming a part of the growing trend in which Vancouver Distillery see’s itself supplying a premium vodka that there customer are looking for.

Vodka dominates the spirits industry, accounting for 28% of all volumes. In 2007, 51.2 million 9-liter cases of vodka were sold in the United States, generating over $4 billion in revenue for distillers. Reflecting American’s desire to drink better, Super-Premium brands drove growth – increasing around 38% in volume.

Over the past few years distillers have delivered an array of flavored vodkas. Today, the public can enjoy vodkas that have been infused with natural spices, refreshing citrus flavors, raspberry, vanilla and others. Flavored vodkas now account for almost 14% of all vodkas sold.

Source: Distilled Spirits Council, Economic & Strategic Analysis Dept.

Future Trends & Strategic Opportunities

According to the National Restaurant Association report released in September 2011, the menu price inflation rate for August 2011 has increased by 2% over the past year. Grocery store price inflation has risen in the past year by 4%. This means that consumers have a higher perceived value of dining at a restaurant versus purchasing groceries at a grocery store. The anticipated growth rate of those dining out in the next quarter is much higher this year as compared to last year. The economic downward spiral of 2008 has seemed to taper off, and may make a positive return in the upcoming years. This is excellent news for the restaurant industry as well as the distilled spirits industry as the rate of consumers dining and drinking out will increase.

Source: National Restaurant Association: http://www.restaurant.org/research/economy/rpi/

The market for Vancouver Distillery covers a large area of densely populated and diverse groups. Vancouver Distillery is located in SE Vancouver, near Westgate Mall and Mall 205 in Portland. This location has easy access from the freeway, is near shopping centers as well as many neighborhood pubs. There also many offices, business, and local venues that attract citizens to the area. With so many citizens and businesses that attract citizens, Vancouver Distillery has an opportunity to attract a variety of customer to the business.

Market and Location of Customers

Local population – The city of Vancouver has a population of 173,000 and is located the Southwest corner of Washington. The female population is 51.2 %. It is less than 15 minutes from the border of Portland Oregon which makes that greater Vancouver area (within 20 miles of city center) population over 750,000

The city of Portland has a population of 537,000 and is located the Northwest corner of Oregon. The female population is 50.5 %. It is less than 15 minutes from the border of Vancouver, Washington which makes that greater Portland area (within 20 miles of city center) population over 750,000. The total female population of the area is about is 384,000.

(http://quickfacts.census.gov/qfd/states/41/4159000.html).

Colleges and Universities – There are over 5 major colleges in the greater Portland Area. They include: University of Portland, Portland State University, Portland Community College, Devry University, Clackamas Community College, Multnomah Bible College, and Warner Pacific University, and Lewis & Clark College.

Local businesses – According to the National Restaurant Association there are over 1875 restaurants within Multnomah County. According to the National Restaurant Association there are over 1398 restaurants within Clark County.

Source: National Restaurant Association: http://www.restaurant.org/research/economy/rpi/

Market Trends & the Future

The estimated population of Portland has continued to increase annually by about 1.5-2% annually for the past 4 years. The growing population is represented by those within our target market (age 25-65). Portland attracts those that are not home owners, single, and non-parents. This also fits our target market.

US Census Bureau: http://quickfacts.census.gov/qfd/states/41/4159000.html

Washington's new craft-distillery license, which became available last summer, has led to a burgeoning of new distilleries. Some differences between the craft and regular distillery licenses that are available*:

Annual license fee: $100 for craft distillery ($2,000 for a regular distillery).

Tasting rooms: Up to 2 ounces per customer (craft) and not available (regular).

On-site sales: Up to 9 ounces per customer (craft) and not available (regular).

Ingredients: At least 51 percent from Washington (craft) and no local restrictions (regular).

Volume limit: Up to 20,000 gallons a year (craft) and no limit (regular).

* This information doesn't include several "fruit and wine" distilleries, which are wineries that make fruit brandy and wine with alcohol content above 24 percent.

Source: Washington State Liquor Control Board

PORTLAND — You know folks in the southeastern part of this city reckon they are on to something big because the nickname game has commenced. Should the district be "Distillery Row"? "Libation Alley"? You get the picture.

The small craft distillery scene has hit Portland, reminiscent of the microbrewery boom two decades ago. Young microbrewers and winemakers are now distilling whiskey, brandy, grappa and even absinthe. And taking a page from Kentucky's iconic whiskey distillers, they are beginning to host tours and tastings. With 17 micro-distilleries in Oregon, and eight more startups expected across the state by year's end, spirits aficionados haven't seen anything like this in recent memory.

Washington may see a boom in the distillery industry thanks to the legislature's passage in March of a law allowing distilleries to host tasting rooms and sell spirits on their premises.

The change clears major barriers and allows micro-distilleries to operate almost like a winery or brewery. Previously, only the state could sell liquor, a holdover law from the end of Prohibition.

In July, Dry Fly Distilling in Spokane, the state's first distiller since Prohibition, will start offering tastings for its vodka, gin and, soon, whiskey.

Under the new law, distilleries can offer up to two ounces in tastings and sell each customer up to two liters per day. The annual distillery license fee dropped from $2,000 to $100, similar to Oregon's fee.

Tan Vinh, http://seattletimes.nwsource.com/html/outdoors/2008004461_nwwdistillers190.html

Competitive Analysis

It may be easy for a company to identify its competitors, but knowing the competitors is a much tougher task. With Vancouver Distillery, the main competitor is Clear Creek Distillery that has the maximum market share in the greater Vancouver/Portland area with $1.25 million in net sales last year.
Burningham, Lucy. http://www.oregonbusiness.com/articles/89-august-2010/3840-shaken-and-stirred?start=3

According to Michael Porter five forces of competitive position model provides a simple perspective for assessing and analyzing the competitive strength and position of the company. The five forces are –

Existing competitive rivalry between suppliers
Threat of new market entrants
Bargaining power of buyers
Power of suppliers
Threat of substitute products (including technology change)

product identity, quality, and value
high employee motivation and good sales attitude
innovative and aggressive service options.

Vancouver Distillery will offer a friendly atmosphere with a strong sense of belonging for each of our customers to experience. The product is a high quality, prepared by professional and experienced distilling masters to meet our customer’s desires and palates.

Craft distilleries
A growing number of small craft distilleries are spread around Portland. Several are located in an industrial area in southeast Portland, known as Distillery Row, as well as by other nicknames. Clear Creek Distillery is in northwest Portland off U.S. Highway 30.
Outside of Kentucky, Oregon hosts one of the nation's most exciting craft distillery scenes. Family-owned Brandy Peak Distillery in Brookings makes spirits the old-fashioned way, from a wood-fired still. Beer empire McMenamins runs a distillery next to Edgefield Hotel in Troutdale, east of Portland. In southeast Portland, House Spirits Distillery can craft a barrel of whiskey tailored to your taste. Nearby, Integrity Spirits makes an absinthe.
Tan Vinh, http://seattletimes.nwsource.com/html/outdoors/2008004461_nwwdistillers190.html

Part of Industry review

A craft distillery is basically a small output distillery whose operation is considerably different from large production distilleries. There are no current precise legal definitions of what makes a craft distiller a craft distiller as opposed to a larger-production distiller. Many craft distillers are incredibly small and informal operations. Some distilleries call on the help of part-time workers to label bottles, while in other operations the distiller might have to drive the truck with his ingredients from his or her suppliers. Most relay on the Internet, word of mouth, and tastings, competitions, and product reviews to get the word on their product out.In general, craft distilleries tend to focus on small production runs of high quality spirits. They also tend to create unique spirits or spirits that occupy niche places in the market that larger conglomerates avoid. Craft distilleries also tend to take more chances in terms of their production, experimenting and challenging boundaries and classifications in the spirit world. Most craft distilleries utilize small pot stills or hybrid stills, while some have the option of using double column continuous stills.Many smaller operations, especially those that are starting up, stick with fruit spirits, gin, vodka, rum, and such because the ingredients are readily available and many of these spirits do not require extended aging like whiskies do. If they do distill whiskies, the whisky traditionally only appears after a few years, when the minimum aging requirements are met. Due to the small output of many craft distilleries as well as variations in liquor laws, many craft distilleries have distribution limited to only a few local states or small regions.

Types of Alcohol
Craft distilleries may distill so-called neutral spirits (vodka or grain alcohol), rum, brandy, cordial, whiskey or liqueur. They may also produce spirits by infusion through redistillation. Craft distillers may start with already distilled neutral spirits as long as they alter the neutrality of the spirits in the process.
Permits and Licenses
Under the Alcohol and Tobacco Tax and Trade Bureau's regulations, craft distilleries fall into the category of "beverage," as opposed to "industrial." Such distilleries are defined as those involved in the production, bottling, processing or storage of spirits suitable for consumption. Applicants must complete TTB F 5100.24, the basic permit established by the Federal Alcohol Administration Act. They also must notify the Food and Drug Administration of their intent to produce alcoholic **Error! Hyperlink reference not valid.**.
&&&&&&
Taxes
Operators of craft distilleries are required to pay the federal distilled spirits excise tax. Fourteen states --Arizona,California,Connecticut,Hawaii,Kansas,Massachusetts,Maryland,Minnesota,Nevada,New Mexico,New York,Oregon,VermontandWashington-- as well as theDistrict of Columbiaalso have their own distilled spirits taxes.
State Laws
States are granted powers under the 21st Amendment with authority to regulate the production and sale of alcoholic beverages. Eighteen of the states are so-called "control" states, which maintain various degrees of direct control over the manufacturing and distribution of alcohol -- the most strict of which limit the sale of alcohol to state-run stores. In the other 32 states, producers of distilled spirits are allowed to sell directly to their customers or to wholesalers.

Regulation Review

Production limits and other restrictions on craft distilleries are set to change following passage in the Washington House and Senate of an amendment to the Craft Distilleries License provisions of Title 66 of the RCW. For those familiar with the original bill enacted in 2008, these are welcome changes and hopefully only the beginning of the modernization of the regulation of spirits, as the artisan distillery industry emerges inWashington.
A brief summary of the changes (SB 6485):
● increases production limits from 20,000 to 60,000 gallons of spirits per year;● allows distillers to sell spirits directly to other licensed distillers and manufactures, allowing cooperative arrangements between distillers;● permits distillery employees to serve their spirits directly to the public as part of a special occasion license;● changes the existing “grower’s license” to cover production and sale of spirits in addition to wine.
For those unfamiliar with the basics of the Craft Distillery law, some of the highlights include:
● all spirits must be produced with a minimum of 50% of Washington sourced raw materials (not including the water of course);● reduction of annual licensing fee from $2000 to $200;● allowing direct on-premise sales of up to 2 liters of spirits per consumer;● allowing on-premise sampling of spirits by consumers of up to two ounces, in half ounce portions.
Just in case you thought that the Board was going to give up too much control, don’t forget that any direct sales and samples must still be purchased from the Board at the retail price the Board establishes. Sensibly, however, you don’t have to transport the bottles to the distribution center inSeattleand then back to your distillery, but you do have to keep good records and make an accounting to the Board.
Source. http://washingtonregulatorylaw.wordpress.com/2010/03/15/changes-to-craft-distillery-provisions/
New rules are needed to implement Initiative 1183 that passed on November 8, 2011. The state ofWashingtonchanged from a controlled liquor system to a privatized liquor system. Some sections of the initiative become effective on December 8, 2011. New license types were created and emergency rules are needed to clarify the language in the new laws created in Initiative 1183.
The mission of the Washington State Liquor Control Board (WSLCB) includes ensuring the responsible sale, and preventing the misuse of, alcohol.

Source. WSLCB. http://liq.wa.gov/publications/rules/OTS-4517%203final.pdf

RCW 66.24.145
Craft distillery — Sales and samples of spirits.

RCW 66.24.630
Spirits retail license.

(1) There is a spirits retail license to: Sell spirits in original containers to consumers for consumption off the licensed premises and to permit holders; sell spirits in original containers to retailers licensed to sell spirits for consumption on the premises, for resale at their licensed premises according to the terms of their licenses, although no single sale may exceed twenty-four liters, unless the sale is by a licensee that was a contract liquor store manager of a contract liquor store at the location of its spirits retail licensed premises from which it makes such sales; and export spirits.(2) For the purposes of this title, a spirits retail license is a retail license, and a sale by a spirits retailer is a retail sale only if not for resale. Nothing in this title authorizes sales by on-sale licensees to other retail licensees. The board must establish by rule an obligation of on-sale spirits retailers to:(a) Maintain a schedule by stock-keeping unit of all their purchases of spirits from spirits retail licensees, indicating the identity of the seller and the quantities purchased; and(b) Provide, not more frequently than quarterly, a report for each scheduled item containing the identity of the purchasing on-premise licensee and the quantities of that scheduled item purchased since any preceding report to:(i) A distributor authorized by the distiller to distribute a scheduled item in the on-sale licensee's geographic area; or(ii) A distiller acting as distributor of the scheduled item in the area.(3)(a) Except as otherwise provided in subsection (c) of this section, the board may issue spirits retail licenses only for premises comprising at least ten thousand square feet of fully enclosed retail space within a single structure, including storerooms and other interior auxiliary areas but excluding covered or fenced exterior areas, whether or not attached to the structure, and only to applicants that the board determines will maintain systems for inventory management, employee training, employee supervision, and physical security of the product substantially as effective as those of stores currently operated by the board with respect to preventing sales to or pilferage by underage or inebriated persons.(b) License issuances and renewals are subject to RCW 66.24.010 and the regulations promulgated thereunder, including without limitation rights of cities, towns, county legislative authorities, the public, churches, schools, and public institutions to object to or prevent issuance of local liquor licenses. However, existing grocery premises licensed to sell beer and/or wine are deemed to be premises "now licensed" under RCW 66.24.010(9)(a) for the purpose of processing applications for spirits retail licenses.(c) The board may not deny a spirits retail license to an otherwise qualified contract liquor store at its contract location or to the holder of former state liquor store operating rights sold at auction under RCW 66.24.620 on the grounds of location, nature, or size of the premises to be licensed. The board shall not deny a spirits retail license to applicants that are not contract liquor stores or operating rights holders on the grounds of the size of the premises to be licensed, if such applicant is otherwise qualified and the board determines that:(i) There is no retail spirits license holder in the trade area that the applicant proposes to serve;(ii) The applicant meets, or upon licensure will meet, the operational requirements established by the board by rule; and(iii) The licensee has not committed more than one public safety violation within the three years preceding application.(d) A retailer authorized to sell spirits for consumption on or off the licensed premises may accept delivery of spirits at its licensed premises or at one or more warehouse facilities registered with the board, which facilities may also warehouse and distribute nonliquor items, and from which the retailer may deliver to its own licensed premises and, pursuant to sales permitted under subsection (1) of this section:(i) To other retailer premises licensed to sell spirits for consumption on the licensed premises;(ii) To other registered facilities; or(iii) To lawful purchasers outside the state. The facilities may be registered and utilized by associations, cooperatives, or comparable groups of retailers, including at least one retailer licensed to sell spirits.(4) Each spirits retail licensee must pay to the board, for deposit into the liquor revolving fund, a license issuance fee equivalent to seventeen percent of all spirits sales revenues under the license, exclusive of taxes collected by the licensee and of sales of items on which a license fee payable under this section has otherwise been incurred. The board must establish rules setting forth the timing of such payments and reporting of sales dollar volume by the licensee, with payments required quarterly in arrears. The first payment is due October 1, 2012.(5) In addition to the payment required under subsection (4) of this section, each licensee must pay an annual license renewal fee of one hundred sixty-six dollars. The board must periodically review and adjust the renewal fee as may be required to maintain it as comparable to annual license renewal fees for licenses to sell beer and wine not for consumption on the licensed premises. If required by law at the time, any increase of the annual renewal fee becomes effective only upon ratification by the legislature.(6) As a condition to receiving and renewing a retail spirits license the licensee must provide training as prescribed by the board by rule for individuals who sell spirits or who manage others who sell spirits regarding compliance with laws and regulations regarding sale of spirits, including without limitation the prohibitions against sale of spirits to individuals who are underage or visibly intoxicated. The training must be provided before the individual first engages in the sale of spirits and must be renewed at least every five years. The licensee must maintain records documenting the nature and frequency of the training provided. An employee training program is presumptively sufficient if it incorporates a "responsible vendor program" promulgated by the board.(7) The maximum penalties prescribed by the board in WAC 314-29-020 through 314-29-040 relating to fines and suspensions are doubled for violations relating to the sale of spirits by retail spirits licensees.(8)(a) The board must promulgate regulations concerning the adoption and administration of a compliance training program for spirits retail licensees, to be known as a "responsible vendor program," to reduce underage drinking, encourage licensees to adopt specific best practices to prevent sales to minors, and provide licensees with an incentive to give their employees ongoing training in responsible alcohol sales and service.(b) Licensees who join the responsible vendor program under this section and maintain all of the program's requirements are not subject to the doubling of penalties provided in this section for a single violation in any period of twelve calendar months.(c) The responsible vendor program must be free, voluntary, and self-monitoring.(d) To participate in the responsible vendor program, licensees must submit an application form to the board. If the application establishes that the licensee meets the qualifications to join the program, the board must send the licensee a membership certificate.(e) A licensee participating in the responsible vendor program must at a minimum:(i) Provide ongoing training to employees;(ii) Accept only certain forms of identification for alcohol sales;(iii) Adopt policies on alcohol sales and checking identification;(iv) Post specific signs in the business; and(v) Keep records verifying compliance with the program's requirements.
[2012 c 2 § 103 (Initiative Measure No. 1183, approved November 8, 2011).]

This site has hundreds of recipes. The web site could have links to recipe websites or just recipes. There are many food recipes using vodka also.
http://cocktails.about.com/od/vodkadrinkrecipes/Vodka_Cocktail_Recipes.htm

Cranberry Martini

Ingredients
3 1/2 oz vodka
1/2 oz cranberry juice

Apple martini

Ingredients
Ice cubes
2 ounces vodka
1-1/2 ounces sour apple liqueur
1-1/2 teaspoons lemon juice
GARNISH:
Green apple slice

Easy Vodka Sauce
"This is a great and simple sauce to make. Tastes delicious over any pasta!
Ingredients
1/2 cup butter
1 onion, diced
1 cup vodka
2 (28 ounce) cans crushed tomatoes
1 pint heavy cream

Company names.
Woman: Japanese – Josie,
French – Femme,
Italian – Donna,
Ice Landic - Kona
Lady: Russian – Ledi
Sexy: Latin- Lorem,

I will edit this information.

[ 1 ] OTS-4517.3
AMENDATORY SECTION (Amending WSR 10-19-066, filed 9/15/10,
effective 10/16/10)
WAC 314-28-010 Records. (1) All distilleries licensed under
RCW 66.24.140 and 66.24.145, including craft, fruit, and laboratory
distillers:
(a) Must keep records concerning any spirits, whether produced
or purchased, for three years after each sale. A distiller may be
required to report on forms approved by the board;
(b) Must, in case of spirits exported or sold, preserve all
bills of lading and other evidence of shipment; ((and))
(c) Must submit duplicate copies of transcripts, notices, or
other data that are required by the federal government to the board
if requested, within thirty days of the notice of such request. A
distiller shall also furnish copies of the bills of lading,
covering all shipments of the products of the licensee, to the
board within thirty days of notice of such request;
(d) Must preserve all sales records, in the case of sales to
spirits retail licensees, sales to spirits distributors, and
exports from the state; and
(e) Must submit duplicate copies of its monthly returns to the
board upon request.
(2) In addition to the above, a craft distiller must:
(a) Preserve all sales records, in the case of retail sales to
consumers; and
(b) Submit duplicate copies of its monthly returns to the
board upon request.
NEW SECTION
WAC 314-28-030 Changes to the distiller and craft distiller
license. Beginning March 1, 2012, all distilleries licensed under
RCW 66.24.140 and 66.24.145 may sell spirits of their own
production directly to a licensed spirits distributor in the state
of Washington and to a licensed spirits retailer in the state of
Washington.
[ 2 ] OTS-4517.3
AMENDATORY SECTION (Amending WSR 10-19-066, filed 9/15/10,
effective 10/16/10)
WAC 314-28-050 What does a craft distillery license allow?
(1) A craft distillery license allows a licensee to:
(a) Produce sixty thousand proof gallons or less of spirits
per calendar year. A "proof gallon" is one liquid gallon of
spirits that is fifty percent alcohol at sixty degrees Fahrenheit;
(b) Sell spirits of its own production directly to a customer
for off-premises consumption, provided that the sale occurs when
the customer is physically present on the licensed premises. A
licensee may sell no more than two liters per customer per day. A
craft distiller may not sell liquor products of someone else's
production;
(c) Sell spirits of its own production to the board provided
that the product is "listed" by the board, or is special-ordered by
an individual Washington state liquor store;
(d) For sales on or after March 1, 2012, sell spirits of its
own production to a licensed spirits distributor;
(e) For sales on or after March 1, 2012, sell spirits of its
own production to a licensed spirits retailer in the state of
Washington;
(((d))) (f) Sell to out-of-state entities;
(((e))) (g) Provide, free of charge, samples of spirits of its
own production to persons on the distillery premises. Each sample
must be one-half ounce or less, with no more than two ounces of
samples provided per person per day. Samples must be unaltered,
and anyone involved in the serving of such samples must have a
valid Class 12 alcohol server permit. Samples must be in
compliance with RCW 66.28.040;
(((f))) (h) Provide, free of charge, samples of spirits of its
own production to retailers. Samples must be unaltered, and in
compliance with RCW 66.28.040, 66.24.310 and WAC 314-64-08001.
Samples are considered sales and are subject to taxes;
(((g))) (i) Contract produced spirits for holders of a
distiller or manufacturer license.
(2) A craft distillery licensee may not sell directly to instate
retailers or in-state distributors until March 1, 2012.
AMENDATORY SECTION (Amending WSR 10-19-066, filed 9/15/10,
effective 10/16/10)
WAC 314-28-060 What are the general requirements for a craft
distillery license? Per RCW 66.24.140 and 66.24.145, a craft
distillery licensee is required to:
(1) Submit copies of all permits required by the federal
government;
(2) Submit other licensing documents as determined by the
[ 3 ] OTS-4517.3
board;
(3) Ensure a minimum of fifty percent of all raw materials
(including any neutral grain spirits and the raw materials that go
into making mash, wort or wash) used in the production of the
spirits product are grown in the state of Washington. Water is not
considered a raw material grown in the state of Washington((;
(4) Purchase any spirits sold at the distillery premises for
off-premises consumption from the board, at the price set by the
board;
(5) Purchase any spirits used for sampling at the distillery
premises from the board; and
(6) Purchase any spirits used for samples provided to
retailers from the board)).
AMENDATORY SECTION (Amending WSR 10-19-066, filed 9/15/10,
effective 10/16/10)
WAC 314-28-070 What are the monthly reporting and payment
requirements for a distillery and craft distillery license? (1) A
distiller or craft distiller must submit monthly reports and
payments to the board.
The required monthly reports must be:
(a) On a form furnished by the board or in a format approved
by the board;
(b) Filed every month, including months with no activity or
payment due;
(c) Submitted, with payment due, to the board on or before the
twentieth day of each month, for the previous month. (For example,
a report listing transactions for the month of January is due by
February 20th.) When the twentieth day of the month falls on a
Saturday, Sunday, or a legal holiday, the filing must be postmarked
by the U.S. postal service no later than the next postal business
day; and
(d) Filed separately for each liquor license held.
(2) For reporting purposes, production is the distillation of
spirits from mash, wort, wash or any other distilling material.
After the production process is completed, a production gauge shall
be made to establish the quantity and proof of the spirits
produced. The designation as to the kind of spirits shall also be
made at the time of the production gauge. A record of the
production gauge shall be maintained by the distiller. The
completion of the production process is when the product is
packaged for distribution. Production quantities are reportable
within thirty days of the completion of the production process.
(3) Payments to the board. A distillery must pay the
difference between the cost of the alcohol purchased by the board
and the sale of alcohol at the established retail price, less the
established commission rate during the preceding calendar month,
[ 4 ] OTS-4517.3
including samples at no charge. On sales on or after March 1,
2012, a distillery or craft distillery must pay ten percent of
their gross spirits revenue to the board during the first two years
of licensure and five percent of their gross spirits revenues to
the board in year three and thereafter.
(a) Any on-premises sale or sample provided to a customer is
considered a sale reportable to the board.
(b) Samples provided to retailers are considered sales
reportable to the board.
(c) Payments must be submitted, with monthly reports, to the
board on or before the twentieth day of each month, for the
previous month. (For example, payment for a report listing
transactions for the month of January is due by February 20th.)
When the twentieth day of the month falls on a Saturday, Sunday, or
a legal holiday, payment must be postmarked by the U.S. postal
service no later than the next postal business day.
AMENDATORY SECTION (Amending WSR 09-02-011, filed 12/29/08,
effective 1/29/09)
WAC 314-28-080 What if a distillery or craft distillery
licensee fails to report or pay, or reports or pays late? If a
distillery or craft distiller fails to submit its monthly reports
or payment to the board, or submits late, then the licensee is
subject to penalties ((and surety bonds)).
(((1))) Penalties. A penalty of two percent per month will be
assessed on any payments postmarked after the twentieth day of the
month following the month of sale. When the twentieth day of the
month falls on a Saturday, Sunday, or a legal holiday, the filing
must be postmarked by the U.S. postal service no later than the
next postal business day.
(((2) Surety bonds. A "surety bond" is a type of insurance
policy that guarantees payment to the state, and is executed by a
surety company authorized to do business in the state of
Washington. Surety bond requirements are as follows:
(a) Must be on a surety bond form and in an amount acceptable
to the board;
(b) Payable to the "Washington state liquor control board";
and
(c) Conditioned that the licensee will pay the taxes and
penalties levied by RCW 66.28.040 and by all applicable WACs.
(3) The board may require a craft distillery to obtain a
surety bond or assignment of savings account, within twenty-one
days after a notification by mail, if any of the following occur:
(a) A report or payment is missing more than thirty days past
the required filing date, for two or more consecutive months;
(b) A report or payment is missing more than thirty days past
the required filing date, for two or more times within a two-year
[ 5 ] OTS-4517.3
period; or
(c) Return of payment for nonsufficient funds.
(4) As an option to obtaining a surety bond, a licensee may
create an assignment of savings account for the board in the same
amount as required for a surety bond. Requests for this option
must be submitted in writing to the board's financial division.
(5) The amount of a surety bond or savings account required by
this chapter must be either three thousand dollars, or the total of
the highest four months' worth of liability for the previous twelve
month period, whichever is greater. The licensee must maintain the
bond for at least two years.
(6) Surety bond and savings account amounts may be reviewed
annually and compared to the last twelve months' tax liability of
the licensee. If the current bond or savings account amount does
not meet the requirements outlined in this section, the licensee
will be required to increase the bond amount or amount on deposit
within twenty-one days.
(7) If a licensee holds a surety bond or savings account, the
board will immediately start the process to collect overdue
payments from the surety company or assigned account. If the exact
amount of payment due is not known because of missing reports, the
board will estimate the payment due based on previous production,
receipts, and/or sales.))
AMENDATORY SECTION (Amending WSR 10-19-066, filed 9/15/10,
effective 10/16/10)
WAC 314-28-090 Distilleries or craft distilleries((--Selling
in-state, retail pricing and product listing))--Selling out-ofstate((--
Special orders)). (((1) What steps must a craft
distillery licensee take to sell a spirits product in the state of
Washington?
(a) There are two ways to sell a spirits product at a state
liquor store:
(i) Through the special order process; and
(ii) Through product listing.
(b) If a craft distillery licensee wants the board to
regularly stock its product on the shelf at a state liquor store,
a licensee must request the board to list its product. If the
board agrees to list the product, a licensee must then sell its
product to the board and transport its product to the board's
distribution center.
(c) Before a craft distillery licensee may sell its product to
a customer (twenty-one years old or older) at its distillery
premises, a licensee must;
(i) Obtain a retail price from the board;
(ii) Sell its product to the board; and
(iii) Purchase its product back from the board. Product that
[ 6 ] OTS-4517.3
a licensee produces and sells at its distillery premises is not
transported to the board's distribution center.
(d) Listing a product. A craft distillery licensee must
submit a formal request to the board to have the board regularly
stock its product at a state liquor store. The board's purchasing
division administers the listing process.
(i) A licensee must submit the following documents and
information: A completed standard price quotation form, a listing
request profile, bottle dimensions, an electronic color photograph
of the product, a copy of the federal certificate of label
approval, and a signed "tied house" statement.
(ii) The purchasing division shall apply the same
consideration to all listing requests.
(iii) A craft distillery licensee is not required to submit a
formal request for product listing if a licensee sells its product
in-state only by special order (see chapter 314-74 WAC).
(e) Obtaining a retail price. A craft distillery licensee
must submit a pricing quote to the board forty-five days prior to
the first day of the effective pricing month. A pricing quote
submittal includes a completed standard price quotation form, and
the product's federal certificate of label approval. The board
will then set the retail price.
(i) Pricing may not be changed within a calendar month.
(ii) A craft distillery licensee is required to sell to its
on-premises customers at the same retail price as set by the board.
If and when the board offers a temporary price reduction for a
period of time, a licensee may also sell its product at the reduced
price, but only during that same period of time.
(2))) What are the requirements for a craft distillery
licensee to sell its spirits product outside the state of
Washington?
(((a))) (1) A distillery or craft distillery licensee shall
include, in its monthly report to the board, information on the
product it produces in-state and sells out-of-state. Information
includes, but is not limited to, the amount of proof gallons sold,
and the composition of raw materials used in production of the
product.
(((b))) (2) Product produced in-state and sold out-of-state
counts toward a licensee's sixty thousand proof gallons per
calendar year production limit (see WAC 314-28-050).
(((c))) (3) Product produced in-state and sold out-of-state is
subject to the fifty percent Washington grown raw materials
requirement.
(((d) Product sold out-of-state is not subject to retail
pricing by the board.
(e))) (4) A distillery or craft distillery licensee is not
subject to Washington state liquor taxes on any product the
licensee sells out-of-state.